Lowe’s and Target, two of the largest US retailers, on Monday joined the long procession of stores reporting grim third-quarter results, as US consumers cut back on discretionary spending amid anxieties about the economy.
Lowe’s, the second largest US home improvement retailer, reported a 24 per cent fall in third quarter earnings to $488m, or 33 cents per diluted share.
Robert Niblock, chief executive officer, said the retailer “saw a decline in sales trends in the last week of October that continued into November as the overall economic outlook deteriorated”.
Larry Stone, chief operating officer, noted that the retailer had seen declining sales “pretty much across the whole US” during the quarter, compared with a previous pattern of slower sales in Florida, California and other areas most affected by the housing slump.
“The uncertainties of the election, and the real impact of the financial markets had a lot to do with it, with people sitting on the sidelines to see what was going to happen,“ he said.
The retailer said there had been a sharp fall off in spending related to major discretionary household projects, such as new kitchen cabinets.
Lowe’s overall sales increased 1.4 per cent to $11.7bn, but fell on a comparable store basis by 5.9 per cent.
The retailer, which operates 1,616 stores across the US, predicted that comparable sales for the fourth quarter would decline by between 5 and 10 per cent, and trimmed its full year earnings guidance by 2 cents to $1.46-$1.54.
Target, the mass discounter, saw its third-quarter earnings fall 24 per cent to $369m, or 49 cents per diluted share, as a sharp fall in income from its proprietary credit card portfolio added to the impact of a 3.3 per cent fall in comparable stores sales. Its total revenues increased 1.7 per cent to $14.6bn.
Target said the profitability of its credit card business fell to $35m, from $202m, citing “higher bad debt expense resulting from current period write-offs and additions to the reserve for future periods”.
The retailer sold just under half of its credit card receivables to JP Morgan Chase in May this year for $3.6bn.
Bad debt expenses on the card more than doubled to $314m from $130m before the sale of receivables to JPMorgan.
Target’s results contrasted with its larger rival Wal-Mart, which reported a 10 per cent increase in quarterly profits last week. Target is more dependent on sales of clothing, housewares and other discretionary items than Wal-Mart, while its rival has also been able to use its extensive low cost grocery business to attract customers.
Target’s shares rose over 2 per cent to $33.95 while Lowe’s was up over 4 per cent at $19.12 in morning trading in New York.
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